Many of the fund's large-cap durable growers also happen to pay dividends that increase each year.

The fund was up 17.80% this year going into Tuesday. That put it into the top 14% of its peer group, which averaged a 14.17% gain, according to Morningstar Inc. The S&P 500 was up 14.41%.

Over the past three years the fund's average annual gain is 12.76% vs. 9.90% for its direct rivals and 10.92% for the big-cap bogey.

Puglia, who is 52 years old, talked with IBD from his office in Baltimore.

IBD: You seek companies that can sustain high growth for three to five years. What sort of companies do that?

Puglia: Companies need several things. We use (Harvard Business School professor) Michael Porter's analysis that it takes companies with competitive advantages. Warren Buffett talks about franchise companies. And Morningstar talks about moats. We want to see stable to improving margins. We want to see companies taking market share. We ask if the total addressable market for a company's products is growing quite large over time.

The final piece is management. All of the other things are not that important if management does not know how to reinvest free cash flow.

The analogy is that a company that generates superior return and has strong free cash flow but does not have strong management is like a fast ship without a rudder. Sooner or later, it will run aground.

IBD: How many of your holdings pay a dividend?

Puglia: Eighty-eight out of 132. Exactly two-thirds.

IBD: Have you tried to tweak your portfolio this year to cope with volatility?

Puglia: If you could anticipate market changes so you could transition from more growth to more defensive names — but that's impossible to do. And we don't want to. That's why we look for durable growth.

IBD: Does that mean there's nothing you can do to position the fund for next year, when we don't know yet what the tax background will be?

Puglia: The longer it takes (for the political parties) to come to an agreement and the less confident investors are that agreement on the budget at least partially addresses entitlement reform, then the more concerned investors will be about riskiness of investing in growth.

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